Federal Tax Reform and Gifts to USM

Thank you for your gifts to USM! The "Tax Cut and Jobs Act" passed and signed into law late in 2017 includes changes related to charitable giving. For many people, it may have a positive impact on making charitable gifts. After consulting with experts in the field of tax-wise philanthropy, we identified the following items of note resulting from the new tax law. We encourage you to check with your tax advisor and financial planner to discuss the impact of the tax law on your continued charitable support of USM and your other valued causes:

The charitable income tax deduction was retained.

Itemizers may now deduct charitable gifts of cash up to 60% of their adjusted gross income (AGI). (Previous limit was 50% of AGI.) The ability to carry forward any unused deduction amount for up to five additional years remains. This may benefit those with significant assets but relatively low annual income.

The legislation repealed the Pease Amendment, which reduced charitable (and other) itemized deductions by up to 80%, depending on your income level. In 2017, these deductions were reduced by 3% of income exceeding $313,800 for married couples ($261,500 for individuals). Now, donors whose incomes exceed those limits will be able to deduct fully their charitable donations (assuming the total of their itemized deductions exceeds the new standard deduction of $24,000 for couples filing jointly or $13,000 for individuals).

The tax rates for six of the seven income brackets were reduced, and the taxable income ranges have changed for five or six of the brackets, depending on your filing status. Many who can no longer itemize deductions may find their Federal income tax reduced, in turn providing increased discretionary income. Some may have a higher Federal income tax liability, and so will receive a greater tax benefit from deducting charitable gifts.

Gifts of appreciated stock remain a good choice. When donating stock, you will continue to avoid capital gains tax, even if you can no longer itemize and take an income tax charitable deduction. Please see our gifts of stock page for more information, including a comparison of donating cash versus donating stock.

The IRA Charitable Rollover remains unchanged. If you are age 70 1/2 or older, you can continue to make charitable gifts of up to $100,000 per year, each known officially as a Qualified Charitable Distribution (QCD). To do this, you instruct your financial firm to transfer funds directly from your IRA to charitable organizations. This is equivalent to a charitable deduction, because you do not report the income, and the gifts count toward your Required Minimum Distribution (RMD). This tax benefit is the same, whether or now you itemize deductions. Additional information can be found here.

The new law makes no changes regarding various types of charitable planned gifts, such as gift annuities, remainder trusts and lead trusts.

The exclusion amount for estate taxes has increased from $5.49 million for 2017 ($10.98 million for couples) to $11.2 million for 2018 ($22.4 million for couples), and will continue to be adjusted for inflation each year. This means that 99.9% of estates will not owe any estate taxes. Estates continue to be entitled to an unlimited estate tax deduction for charitable gifts. Donors, whose estates previously would have paid estate taxes, may now have additional resources available, both to pass to heirs and for charitable estate gifts. Note: the increased exclusion amount will continue through 2025, and then revert to 2017 levels, unless Congress takes further action.

Your gifts continue to have a positive impact on our students every day. Thank you to all of our donors who continue to provide for USM annually and in their estate plans. As always, USM is a tax exempt nonprofit, 501(c)(3) independent school, and your gift is tax deductible to the extent allowed by law. Again, be sure to consult your tax professional to discuss how the new tax laws will affect your specific situation, and how it may affect the manner and timing of your charitable gifts.